CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Bank of Japan Preview: Markets look for guidance from BOJ about timing of next hike

By Kyle Rodda

11:05, 12 June 2024

The Bank of Japan meets on Friday, 14th of June, 2024. We preview what to expect from the BOJ decision and how it might impact the USD/JPY and Nikkei 225.

Will the BOJ set the stage for a July hike?

Swaps markets suggest that the Bank of Japan will keep policy unchanged at this meeting. However, the curve continues to indicate further hikes from the central bank this year, with a greater than 80% hike implied for the July meeting, with two hikes fully baked-in for 2024. As a result, the markets are positioning for guidance from the BOJ about when it expects to hike next, with the balance of probabilities suggesting it will happen at the next meeting.

(Source: Bloomberg)

Expectations for future policy tightening come despite mixed economic data in Japan. Growth is slowing down, with GDP contracting 0.5% in the first quarter. Core CPI is also trending lower, although remains a fraction above the BOJ’s 2% target. Despite the fundamentals, the recent commentary suggests that higher wage growth, as well as a jump in wages from recent “shunto” negotiations, has the central bank confident that a virtuous wage/price cycle will anchor inflation above 2%.

(Source: Trading Economics)

Although it won’t admit it explicitly, partly because it’s the mandated responsibility of the country’s Ministry of Finance, the Bank of Japan remains wary of the influence monetary policy is having on a weaker exchange rate and the knock-on impacts that has on inflation. As a result, the BOJ may be more inclined to prepare the markets for tighter policy going forward.

What is your sentiment on USD/JPY?

158.408
Bullish
or
Bearish
Vote to see Traders sentiment!

The BOJ could begin process of tapering quantitative easing

There’s also a high chance that the Bank of Japan will flag are reduction in the size of its asset purchases at this meeting. Reports have circulated in the markets of meetings between monetary and fiscal authorities about the central bank reducing the size of its bond holdings, especially how that may impact government spending and interest repayments. Given higher global bond yields and the upward pressure that is putting on long-term rates, along with a desire to tighten financial conditions to adequately manage inflation risks and lean against a depreciating currency, the fundamentals are in place for the Bank of Japan to commence quantitative tightening. According to a Bloomberg survey, a majority of economists expect the Bank of Japan to reduce bond purchases, slowing them to ¥6 trillion per month.

(Source: Bloomberg, Capital.com)

GBP/USD

1.30 Price
+0.020% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00013

AUD/USD

0.67 Price
-0.380% 1D Chg, %
Long position overnight fee -0.0066%
Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00006

GBP/JPY

205.43 Price
+0.290% 1D Chg, %
Long position overnight fee 0.0104%
Short position overnight fee -0.0187%
Overnight fee time 21:00 (UTC)
Spread 0.037

USD/JPY

158.41 Price
+0.200% 1D Chg, %
Long position overnight fee 0.0109%
Short position overnight fee -0.0191%
Overnight fee time 21:00 (UTC)
Spread 0.010

(Past performance is not a reliable indicator of future results)

Technical analysis: USD/JPY and Nikkei 225

Given a July hike from the Bank of Japan isn’t fully priced-in, guidance from the central bank that it could move at it its next meeting could put upward pressure on the Yen and downward pressure on the Nikkei. That dynamic would be compounded if the BOJ confirms a reduction in bond buying. Conversely, a more neutral tone about the policy outlook could lead to an unwinding of rate hike expectations; however, that outcome is unlikely, given the central bank’s concerns about inflation and a weaker Yen.

The USD/JPY remains in an uptrend, despite policymakers attempts to jawbone the Yen and intervene in the market. Rallies continue to be faded above 158, while 152 has proven to be a significant level of support/resistance. A short-term higher-low at 155 could be another critical level to watch.

(Source: Trading View)

(Past performance is not a reliable indicator of future results)

The Nikkei is trending sideways (despite the weaker Yen) as policy uncertainty and higher JGB yields put pressure on valuations. Technical resistance appears to be around 39,400 and marks the top of the markets recent short-range. Meanwhile, significant technical support appears to be around 37,000.

(Source: Trading View)

(Past performance is not a reliable indicator of future results)

Rate this article

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 630,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading